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IRS and Treasury Issue New Guidance for Corporate Alternative Minimum Tax

S.J. Steinhardt
Published Date:
Feb 21, 2023

The Treasury Department and the IRS issued guidance for insurance companies and certain other taxpayers about the new corporate alternative minimum tax (CAMT).

The interim guidance, set forth in Notice 2023-20, is to be used until proposed regulations are issued.

The CAMT, created by the Inflation Reduction Act of 2022, imposes a 15 percent minimum tax on the adjusted financial statement income of large corporations for taxable years beginning in 2023. Taxpayers generally affected by the CAMT are corporations, including insurance companies, with an average annual adjusted financial statement income exceeding $1 billion.

The interim guidance provided in the notice determines the adjusted financial statement income as it relates to variable contracts and similar contracts, funds withheld reinsurance and modified coinsurance agreements, and the basis of certain assets held by certain previously tax-exempt entities that received a "fresh start" basis adjustment.

The notice was issued “to provide certainty to insurance companies and certain other taxpayers,” according to the IRS.

“The guidance addresses significant distortions that could arise as corporations determine their tax owed under the CAMT because of the interaction of financial accounting rules for certain life insurance assets and the CAMT,” the Treasury Department stated, according to CPA Practice Advisor. “To prevent unintended inclusion of non-economic gains or losses that appear on financial statements when determining tax owed under the CAMT, the notice allows taxpayers to use accounting practices that are in line with existing financial statement and tax treatment of these transactions. The guidance also clarifies that certain statutory ‘fresh start’ basis rules for formerly tax-exempt corporations apply to determine gains or losses under the CAMT.”

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